Federal Tan Tax Burns Some Badly but Keeps Everybody in the Dark

Ultraviolet Light Sessions Mostly Subject To New Levy, but Spray-On Jobs Are Cool

By

Janet Adamy

Updated July 1, 2010 12:01 a.m. ET

When Jeanne Chamberlain turns up at work Thursday, she's going to have to grapple with America's first federal tax on tanning services, a 10% levy designed to help pay for Congress's health-care overhaul.

Ms. Chamberlain runs a video-rental store.

ENLARGE

Lacie Ledet wipes down a bed at Sun Tan City in Lexington, Ky. The salon would be hit by the new federal tax.
Carl Kiilsgaard for The Wall Street Journal

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These would normally be unrelated facts, but 20 years ago, Ms. Chamberlain followed a number of her peers in adding tanning services to smooth out the bumps in her Rice Lake, Wis., business. Today, she wants to offer one free tan for every three rentals. Should that freebie be taxed? Ms. Chamberlain doesn't know, and even if she did, she doesn't yet have the software in place to help with the calculations.

It's a universal truth in Washington: There's no such thing as a simple tax. Free tans at video-rental stores might be taxable, but tanning services offered by health clubs mostly aren't, thanks to a late exemption. Ultraviolet tans are taxed. Spray tans aren't. Tanning salons are fretting over how to calculate unlimited memberships that combine taxed and non-taxed tans. Customers, meanwhile, have been racing to cram in tanning sessions to avoid the levy.

"It's just total confusion," said Ted Engen, president of Video Buyers Group in Coon Rapids, Minn., who has encouraged numerous video chains to add tanning services. "How come gyms got to be exempt?...Why don't we have that for the video side?"

When they completed their health bill last year, Senate Democrats searched high and low for new taxes to pay for the legislation. One idea, a tax on cosmetic surgery dubbed the Botax, was scotched by lobbying by the American Medical Association. Instead, lawmakers turned to the indoor tanning industry.

Tanning salons, caught flat-footed, got burned. They're now on tap to feed $2.7 billion to the federal government over the next decade, kicking off Thursday with what will be the first tax in the health-care law to take effect.

In June, the Internal Revenue Service released regulations spelling out how the tan tax will work, sending a shudder through parts of the industry.

Among the new details: "qualified physical fitness facilities" that include access to tanning beds as part of their membership fee won't be subject to the tax.

That means customers at Sun Tan City in Owensboro, Ky., will pay 10% more for a dose of ultraviolet rays. But if they go to Anytime Fitness 100 yards away, and tan inside one of its two beds, they'll escape.

"My jaw dropped," said Rick Kueber, founder and chief executive of Sun Tan City, a 124-outlet chain based in Elizabethtown, Ky. Then he got to thinking. "If I had six treadmills in each of my stores, can I call myself a health club?"

Health clubs are now preparing to poach customers from nearby salons with the promise of no-tax tanning. "You shouldn't be discouraging people from being healthier," said John Craig, a spokesman for Planet Fitness, a 342-chain club based in Newington, N.H. Each facility has between three and seven tanning beds, and the service is included in its $19.99 monthly membership fee.

The health-club rule isn't straightforward, either. If the tan is bundled into regular membership fees, it's not taxed. If it's sold as an upgrade, it would be.

A spokeswoman for the group said it didn't lobby or contact the IRS on the matter.

Ms. Chamberlain, owner of Video Plus-Celebrity Tan, is stumped over how to apply the tax to her annual fall promotion. "If we bundle things, it's going to be a big pain to figure out what's taxable and what isn't," said Ms. Chamberlain. "If we give it to them free, apparently that's still taxable."

Clint Herbst, owner of Starstruck Video, in Becker, Minn., another tanning-and-video hybrid, recently scrapped similar plans. "I don't want to muddy the water and bundle with tanning, because to have an audit would be a nightmare with all the receipts," he said.

A spokesman for the IRS said it's not clear whether the free tan would be taxed, and that business owners should "make the best determination they can based on their own facts and circumstances."

Spray tans, a non-ultraviolet treatment that simulates a suntan, present one of the biggest quandaries. Many salons sell unlimited memberships for both spray tans (not taxed) and ultraviolet tans (taxed).

The IRS says businesses should tax the amount that's reasonably attributable to the traditional tanning service. Salon owners say that's impossible to determine, since they won't know until after the customer finished bronzing.

"What am I going to do now? Go after the person afterwards and say, 'Oh, by the way, now you owe us an extra $1.50?"' asked Dan Humiston, who owns 33 Tanning Bed Inc. outlets in upstate New York.

One outlet, Gault Cleaners and Tanning in Mount Vernon, Ohio, offers dry cleaning as well as tanning. It called the tax the final straw, and was shutting its doors Wednesday.

Some salons are soliciting signatures for petitions against the tax and encouraging patrons to beat it by tanning extra in the weeks before it takes effect.

Melinda Scheible, a 49-year-old resident of Rineyville, Ky., joined a protest at the Sun Tan City location where she bronzes by signing a petition and now plans to look for a cheaper location.

In June, Ms. Scheible developed her own solution: She tanned two to three times a week "to get in before the tax."

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